The Australian Dollar has slightly increased against the US Dollar and has held steady for a second consecutive day. This stability comes amid low trading volumes because of the New Year holiday in Australia. In December, China’s Manufacturing Purchasing Managers’ Index (PMI) climbed to 50.1, exceeding forecasts, while the Non-Manufacturing PMI rose to 50.2, also above expectations. The Australian Dollar is gaining traction due to potential interest rate hikes from the Reserve Bank of Australia (RBA). Discussions are underway about possible changes in 2026. The RBA has indicated it is ready to tighten policy if inflation does not fall as expected. The Q4 Consumer Price Index (CPI) report is scheduled for January 28 and could trigger a rate increase meeting on February 3 if core inflation appears strong.

The US Dollar Holds Steady

At the same time, the US Dollar Index remains stable after recent gains. The Federal Open Market Committee (FOMC) is likely to keep rates steady if inflation eases. The FedWatch tool shows an 85.1% chance that rates will stay the same at the next Fed meeting. Recent statistics in the US job market show mixed trends, with initial jobless claims down and continuing claims up. The AUD/USD pair is trading around 0.6690 and is following a rising channel pattern. Technical analysis suggests a bullish outlook, with the pair testing resistance at 0.6700 and potentially moving towards 0.6850. Support is found at the nine-day Exponential Moving Average (EMA) of 0.6684, with possible downside to 0.6414. The Australian Dollar is performing variably against major currencies, particularly strong against the New Zealand Dollar. The NBS Manufacturing PMI, a key economic indicator for China, increased to 50.1 in December, signaling growth in the manufacturing sector. China’s NBS Manufacturing PMI significantly influences global financial markets due to China’s economic importance. Released monthly, this data offers early insights into the health of China’s manufacturing sector, making it vital for traders.

End Of Year Insights

As we end 2025, the Australian Dollar shows strength, bolstered by unexpectedly positive manufacturing data from China. This suggests rising demand for Australian goods as we enter the new year. The AUD/USD pair remains sturdy despite holiday-thinned trading volumes. The main driver is the different approaches of the central banks. The Reserve Bank of Australia (RBA) is exploring rate hikes for 2026, while the US Federal Reserve has paused its rate-cutting cycle after cutting rates three times in 2025. This policy gap creates a favorable environment for the Australian Dollar relative to the US Dollar. This situation brings to mind late 2023, when a rebound in Chinese industrial output pushed iron ore prices above $130 per tonne, boosting the Australian Dollar. We are seeing early signs of a similar trend, with February 2026 iron ore futures on the Singapore Exchange rising 2.1% last week, indicating renewed demand from China. A key event on the horizon is the Australian Q4 inflation report set for January 28. Markets are already anticipating a high chance of an RBA rate hike at the February 3 meeting, making this data crucial. We should prepare for increased volatility around that date. Given the positive technical signals and the RBA’s hawkish stance, buying call options on the AUD/USD is a smart strategy. We’re focusing on February expiry dates with strike prices around 0.6750, just above recent highs. This positions us to benefit from a strong inflation report that could push the pair toward the 0.6850 resistance level. The main risk lies in a weaker-than-expected inflation figure, which could quickly diminish expectations for an RBA rate hike. Such a surprise might lead the AUD/USD to break below its support level around 0.6680. Therefore, defining risk strategies or implementing stop-losses is crucial to manage any potential sharp reversal. Create your live VT Markets account and start trading now.

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